33 Pages Posted: 10 Dec 2014 Last revised: 10 Aug 2016
Date Written: August 8, 2016
We use exogenous changes in the probability that firms adopt executive ownership guidelines (EOGs) to measure the influence of board connections on the spreading of executive compensation policy. EOGs require managers to hold pre-specified equity ownership levels, and their use has increased gradually from less than 5 percent of the largest US firms in 1992 to 73 percent in 2013. We use changes in state tax rates as a determinant of adopting EOGs and find that board connections are a significant channel through which EOGs disseminate. This finding highlights the dissemination of compensation policy through the influence exerted by the board of directors, and complements explanations based on similar firms adopting similar compensation policies.
Keywords: Executive compensation, executive compensation trends, board interlocks
JEL Classification: G34
Suggested Citation: Suggested Citation